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GM files Chapter 11, makes June 1 a milestone in American business history

Submitted by Jen Jones on Tue, 06/02/2009 - 10:55am

It happened.

After months of speculation, one of the largest companies in the world, General Motors, filed for bankruptcy. A giant bow was just tied around the recession and the gift of ownership in a grossly mismanaged industrial icon was granted to the American taxpayer, putting the final touches on a nicely enveloped national economic crisis.

In a Manhattan bankruptcy court, the company that brought the world the 57 Chevy Bel Air, Corvette and Pontiac GTO---icons of the car world---filed for Chapter 11 protection. Of course, General Motors also gave us the Hummer, Cavalier and Pontiac Aztec.

Chapter 11 is a form of bankruptcy that allows a business to re-organize, operationally and financially, and then "emerge" retooled and better prepared to serve customers. In the case of General Motors, the re-organization will involve a 60% ownership stake by the United States Government. In press reports, President Obama said the business decisions will be left to the experts.

Over the last several months, the company was working hard to reach out of court settlements with bondholders and United Auto Workers union leadership with appointees from the Obama administration refereeing the negotiations. So as of June 1, 56,000 auto workers and the countless others employed by the 3,600 GM dealers across the country, will go home not knowing what to do on the morning of June 2. But for whatever its worth, they at least own a part of the company. When all is said and done, and according to an agreement with the UAW, at least 18,000 workers will be affected by the bankruptcy.

The car and truck manufacturer must get approval from the court to sell a vast majority of its highest priced assets by July 10. Disposing of the Saturn, Hummer and Saab brands will be the plan's first priority. The plan also calls for the federal government to provide another $30 billion in support to the company to help expedite its bankruptcy effort, putting the total borrowed dollars from Washington to $50 billion. The governments in Canada and the province of Ontario are pumping a 12.5 percent stake into the company to the tune of $9.5 billion.

The plan's central component calls for the company to be split into a "new GM" and, aptly enough, an "old GM." The latter portion of the company will remain focused on slowly taking itself apart, realigning where necessary but for the most part, liquidating assets and shedding the stigma of a crumbling industrial monstrosity. The new GM will be "lean and mean" according to officials involved, aiming to establish itself as car maker in tune with the needs of contemporary America. The first example of that could be seen under the hood of the new Chevy Volt, a slick little electric number that even while under the darkening shadow of bankruptcy, GM has managed to market quite well. Anticipation is building for its affordable and well-reviewed entry into the sustainable car market.

June 1 marks a milestone in American business history. Truthfully, it's just a matter of terrible timing. General Motors was making some really bad decisions for a number of years now. The recession only magnified them, adding Hummer like weight to a Chevette chassis.

In light of the bankruptcy, Wall Street was positive and the markets continued to climb, perhaps signifying that America has heard and processed all the bad economic news they can stand. Perhaps.